Category: Gold & Commodities

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Gold, silver and the Dollar

A long-term chart of silver shows strong support at $15/ounce. Recovery above $18 and 13-week Twiggs Momentum above zero would suggest that the precious metal has bottomed. A bullish sign for gold.

Silver

The picture for gold is less clear, with further tests of primary support at $1140/ounce expected. 13-Week Twiggs Momentum is also rising and recovery above zero would be a bullish sign. But breakout above $1300 is unlikely at present. Breach of support at $1140 would offer a target of $1000*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

Stocks of major gold producers like Barrick Gold remain bearish.

Barrick Gold

The Dollar Index respected its declining trendline, warning of another test of primary support at 93. Breach of support would signal a primary down-trend. A weaker Dollar would boost demand for gold and lift the US economy, enhancing the competitiveness of exporters and local manufacturers facing competition in domestic markets.

Dollar Index

Long-term interest rates are rising, however, and provide support for the Dollar. 10-Year Treasury yields respected their new support level at 2.25% and are likely to test long-term resistance at 3.0 percent. Rising 13-week Twiggs Momentum above zero, strengthens the signal.

10-Year Treasury Yields

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Gold suggests no “Grexit”

Gold reversed the gains of the last two weeks, anticipating a resolution to the eurozone’s “Grexit” crisis. Follow-though below $1170/ounce would warn of a test of primary support at $1140/$1150. Repeated peaks below zero on 13-week Twiggs Momentum signal a primary down-trend. Breach of primary support would offer a long-term target of $1000/ounce*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

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Interest rates and inflation hurt gold prices

Where is inflation headed? The five-year breakeven rate (5-Year Treasury Yield minus 5-year TIPS) is hovering around 1.80 percent, close to the latest readings for core CPI. The market is anticipating low inflation for the next few years.

Five-year Breakeven Rate and Core CPI

Long-term interest rates are rising in anticipation of Fed tightening. 10-Year Treasury yields, in a primary up-trend, are retracing to test their new support level at 2.25%. Respect is likely and would signal an advance to long-term resistance at 3.0 percent. Rising 13-week Twiggs Momentum crossed above zero, strengthening the signal.

10-Year Treasury Yields

Gold

Low inflation reduces demand for gold as an inflation-hedge, while rising interest rates increase its carrying cost for speculators and the opportunity cost for investors. These factors are exerting downward pressure on gold prices. The spot price recovered above medium-term support at $1180/ounce, but the breach continues to warn of a test of the primary level at $1140. 13-Week Twiggs Momentum peaking below zero also suggests continuation of the primary down-trend. Failure of $1140 would offer a long-term target of $1000*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

The Gold Bugs Index, representing un-hedged gold stocks, is testing primary support at 155. Breach of support would strengthen the warning.

Gold Bugs Index

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Crude: Where next?

Nymex Light Crude plotted against CPI gives an historical perspective on current crude prices: high prior to China’s entry into the global energy market, but low relative to prices since then. Expect strong support at the 2008 low.

Nymex WTI Light Crude and Brent Crude

Has fracking permanently suppressed oil prices, or will production dwindle over time in response to lower prices? Oil well efficiency is rising as marginal wells are mothballed.

 

Production forecasts are rising.

 

Causing oil futures to fall. June 2020 Light Crude broke support at $70/barrel, offering a target of $55/barrel.

June 2020 Light Crude

* Target calculation: 70 – ( 85 – 70 ) = 55

Spot prices (Nymex Light Crude) continue to range between $58 and $61 per barrel. Reversal below $58 would signal retracement to test medium-term support at $54. Breakout above $61 is unlikely at present, but would signal a rally to $68/barrel.

Nymex WTI Light Crude and Brent Crude

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Crude retraces

Nymex Light Crude encountered solid resistance at $60/$61 per barrel. Reversal below $58 would signal retracement to test the new support level at $54. Respect would indicate an up-trend, while failure of $54 would test primary support at $44. Brent Crude [green] is already retracing and likely to test support at $54.

Nymex WTI Light Crude and Brent Crude

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Gold breaks $1180 support

Core CPI continues to track close to the Fed target of 2.0 percent (CPI All Items is distorted by falling oil prices).

CPI and Core CPI

Long-term interest rates are in a primary up-trend, with 10-year Treasury note yields breakout above resistance at 2.25% offering a target of 3.0 percent. Rising 13-week Twiggs Momentum above zero strengthens the signal.

10-Year Treasury Yields

The Dollar Index continues to test support at 95. Breach would warn of a test of the primary level (and rising trendline) at 93. A sharp decline on 13-Week Twiggs Momentum indicates this is likely.

Dollar Index

Gold

A weakening dollar would boost demand for gold, but rising interest rates counter this. Spot gold broke medium-term support at $1180/ounce, warning of a test of the primary level at $1140. 13-Week Twiggs Momentum peaks below zero suggest continuation of the primary down-trend. Failure of $1140 would offer a long-term target of $1000*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

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Australian exports hammered

This chart from Westpac highlights Australia’s export misery:

Iron ore Exports and Earnings

Iron ore prices are falling faster than shipments are rising. Andrew Hanlan sums up the the problem facing the Australian economy:

A jump in imports coincided with a sharp fall in export earnings. Critically, the rest of the world is paying us considerably less for our key exports, iron ore and coal. This negative shock is squeezing incomes for businesses, households and government alike.

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Gold tests support at $1180

Spot gold retreated to test medium-term support at $1180/ounce. Breach of support would indicate a test of the primary level at $1140. 13-Week Twiggs Momentum peaks below zero suggest a primary down-trend. Failure of $1140 would offer a target of $1000*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

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Crude finds resistance at $60/barrel

Nymex light crude encountered resistance at $60/barrel. Expect retracement to test the new support level at $54/barrel. Respect would indicate a primary advance, while failure would suggest recent gains are no more than a bear market rally and another test of $44 is likely. 13-Week Twiggs Momentum below zero continues to reflect a primary down-trend.

Brent Crude and Nymex WTI Light Crude

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Inflation steady while Gold tests support

CPI continues below zero, but core CPI (excluding food and energy) came in at 1.81% for April 2015, indicating long-term inflationary pressures are constant.

CPI and Core CPI

Low inflation relieves upward pressure on bond yields. The yield on 10-year Treasury notes encountered resistance at 2.25%, with tall shadows on the last 3 weekly candles. Expect another retracement to test support at 1.85%. Reversal of 13-week Twiggs Momentum below zero would strengthen the signal.

10-Year Treasury Yields

* Target calculation: 2.25 + ( 2.25 – 1.85 ) = 2.65

The Dollar Index broke resistance at 96 despite falling bond yields, indicating the correction is over and another test of 100 likely. 13-Week Twiggs Momentum is declining, but recovery above the descending trendline would support the (bull) signal. Reversal below 96 is unlikely, but would test support at 93.

Dollar Index

Gold

The inflation-adjusted price of gold (gold/CPI) suggests that gold has further to fall. Unusually high levels of intervention by central banks in financial markets may, however, be fueling support at current prices — suggesting a gradual decline rather than a sharp adjustment.

Gold/CPI

Spot gold is headed for another test of medium-term support at $1180/ounce after respecting resistance at $1220. Breach of support would test the primary level at $1140. 13-Week Twiggs Momentum peaks below zero suggest a primary down-trend. Failure of $1140 would test the long-term target of $1000*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

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